Cooking the Books: Debts and Doubts
Debts and doubts
The public sector union UNISON has provided its activists with briefing notes on the economic crisis, based on the illustrations used in a talk by Barry Kushner that can be found on YouTube at http://www.youtube.com/watch?v=Y8JcZl5CcD0.
He shares the illusion that the economy is a tool which governments can manipulate to ensure growth or more equality (or less equality) or whatever. In other words, he ignores the fact that the profit-motivated market economy that is capitalism is governed by economic laws which governments have to accept and apply if they don’t want to provoke an economic crisis.
This said, he does make some valid points about the scare stories about the National Debt put out by the present government to justify its austerity programme.
The National Debt is the government’s debt and has nothing to do with the debt of the individuals who make up the supposed “nation” (it is not the total of private debts). As such, it is better called the Government Debt (its official name is “Public Sector Net Debt”). Similarly, the Deficit is the government’s. It’s the difference between what it raises through taxes and what it spends, which it has to cover by borrowing. What it spends includes the interest it has to pay on the Government Debt.
“We are told,” says Kushner, “that our country was nearly bankrupt, that our debt payments are £120 million per day, that our debt is nearly £1 trillion” and quotes George Osborne as saying on the Andrew Marr show that “we were on the brink of bankruptcy” and another government statement that “our debt is higher than it’s ever been.”
The Government (not “our”) Debt is only higher than it’s ever been in nominal (face value) terms, only because £1 trillion today is not the same as £1 trillion in the past. Kushner points out that the usual way of measuring the level of the Debt is to compare it with Gross Domestic Product (basically the value of new wealth created in a year). At the moment, this ratio is around 60 percent. One of Kushner’s graphs shows Government Debt as a percentage of GDP from 1900 to 2010. From 1920 to 1960 it was consistently well over 100 percent; just after WW2 in 1945 it was 261 percent. In other countries it is much higher: 100 percent in the US, 200 percent in Japan
The government does not need to be in a position to pay off the whole Government Debt in one go. Since about 80 percent of GDP is made up of what people consume and what the government spends on essential services, 60 percent could not be devoted to repaying the Debt in one year without mass starvation. Most of the Debt is continually renewed as those lending the money to the government want to keep on receiving the interest.
Interest payments on the Government Debt are £120 million a day but, at £43.3 billion a year, this is less than 3 percent of GDP, which is easily affordable. Kushner points out that in 1981, under Thatcher, interest payments were in today’s money £174 million a day or over 5 percent of GDP, adding that we “didn’t hear talk of bankruptcy then”. According to www.ukpublicspending.co.uk/uk_debt, “experts say that when interest payments reach about 12% of GDP then a government will likely default on its debt”. As just seen, the British government’s payments are nowhere near this figure.
There never was any danger of bankruptcy. Osborne was just scaremongering to justify cutting government spending for other reasons. The cuts are being made to try to restore profitability. It’s because saying this openly would not go down well that the government has resorted to the scarce stories and lies about bankruptcy, unsustainable interest payments and the like.